An extremist, not a fanatic

May 24, 2012

The weak demand for equal opportunity

It's commonly thought that people are more likely to accept income inequalities if they believe these arise from equality of opportunity.For example, some attribute the relative weakness of the US welfare state to the fact that Americans believe (wrongly) that the poor have plenty of chances (pdf) to get ahead.

But what exactly is the link between perceptions of fair opportunity and demand for fair outcomes? Some experiments by Eugenio Proto and colleagues at Warwick University shed some worrying light.

They got people to play an ultimatum game, where one person proposes to split £10 between themselves and a partner. If the partner accepts the offer, both get the money agreed. If the partner rejects the offer, nobody gets anything.

The wrinkle was that the role of proposer - the advantaged position - was allocated by lottery which was either fair (giving people a 50-50 chance) or biased.

They found that when the lottery was fair, responders on average rejected offers of £2.15 or less. But when the lottery gave people zero chance of being a proposer, responders rejected offers of £2.96 or less.

This corroborates common sense. If people feel they have unequal chances, they'll demand more equal outcomes.

But what about intermediate levels of unfairness? When the chances of being a proposer were 20%, responders rejected offers of £2.39 or worse. And when the chances were 1%, they rejected offers of £2.53 or worse.

We can put this another way. The difference between a zero and one per cent chance is worth 43p - the difference between £2.96 and £2.53. But the difference between a 1% chance and 50% chance is only worth 38p - the difference between £2.53 and £2.15.

In other words, what people value most is having some chance - 1% versus nothing. Having greater opportunity - moving from a 20% to 50% chance isn't so valuable, in the sense that it doesn't so much affect bargaining behaviour.

This has (at least) two implications.

One is that it shows that people value procedural utility; having some chance to affect the outcome is what matters to them, rather than having a big chance.

The other is that, once some small chance exists, people don't greatly care about equalizing chances. They care more about having a small chance than about increasing their chances. These laboratory experiments confirm what we see in public opinion - that, like it or not, there is little demand for policies that would greatly equalize opportunity, such as abolishing private education or steep inheritance taxes.

I don't know why this is; I suspect it's related to the certainty effect. But surely lefties should be disquieted by the fact that egalitarian impulses can be bought off so cheaply even in laboratory conditions.

Comments

"For example, some attribute the relative weakness of the US welfare state to the fact that Americans believe (wrongly) that the poor have plenty of chances (pdf) to get ahead."

The study you link to compares the US with the UK and the Nordic countries. Such a comparison hardly proves the American public wrong in their belief. Why did they exclude France, for example.

Comparisons with the Nordic countries - which are successful for specific reasons not common to most of the world - are usually the sign of somebody trying to fudge their way to a predetermined conclusion.

Re "there is little demand for policies that would greatly equalize opportunity, such as abolishing private education or steep inheritance taxes".

I think a factor in both of these is the belief of some (perhaps many) that they too may become successful enough to send their kids to private school and provide a significant inheritance. This belief probably persists way beyond the point where the jury is in.

Like it or not, private education, like yachts and Aston Martins, is aspirational. People tend not to be keen on abolishing their dreams.

It is also instrumental. In other words, Gove and Clegg's speeches deploring the disproportionate success of the privately educated just serves to reinforce the perceived value of this "leg up". They should get marketing awards.

Rather than abolish private schools, we should simply limit them to 7% of Russell Group places and professional certifications (medicine, law, accountancy etc). Equality of outcome, rather than opportunity, would be better.

"Rather than abolish private schools, we should simply limit them to 7% of Russell Group places and professional certifications (medicine, law, accountancy etc). Equality of outcome, rather than opportunity, would be better."

I agree that equality of outcome is realistic if that is what you mean, as the other kind is largely a myth and always was. But your plan is unworkable politically if people think private education gives their children an advantage why would they back a limit on the number who can exploit the advantage? That is wasting your money. Unless people accept the fairness argument against privilege it is no more practical than proposing to abolish private education altogether.

I always doubt the applicability of these lab based games to actual society. A firm grasp of the low probability of actually leaving a fortune to your kids is more useful as an argument for inheritance taxation. But most people never seem to do the math.

Lefties should be disquieted indeed, and proponents of supply-side economics should be as well. Free market is supposed to be optimal only if people behave more or less rationally. If people are selfish to the point of NOT pursuing their self-interest, there is a problem.
This is not a marginal issue, especially as taxes are concerned. I copy-paste below a comment I left a few days ago on Mark Thoma's blog about people's attitude towards taxes.

"Like the USA, Switzerland is a decentralized federation, with a lot of tax and budget autonomy at city, state and national levels. It is also a direct democracy that allows citizens to run referendums and propositions on pretty much everything at each of those three levels. It means that Swiss people pay the taxes they directly voted for.
And tax votes in the past 30 years appear to show some counter-intuitive results:
- The national budget, as well as most city and state ones, are balanced. People fear deficits more than they dislike taxes (which could in part explain the difficulty of keynesians in making their point in the US or Europe).
- People don't seem to prefer taxes that would benefit the majority and hit the wealthier. Wealth taxes are notably low, inheritance taxes have been abolished in most or all states. A couple of years ago, Swiss people even refused to correct a system distortion that creates tax havens for the super-rich a few miles away from Zurich business center.
- On the opposite, increases of VAT and gas tax have been approved.
- People like to keep as many things as possible separate from the national accounts. Most social benefits are entirely paid for by independent schemes. Contributions are either flat-rate or fix amounts per head.
We can risk a few explanations for all this:
- People are not rational.
- They are also economically illiterate, just like the journalists that would be supposed to inform them.
- Swiss economists who would be supposed to inform the journalists are either too lazy to speak out, or they are caught in conflicts of interests, because they receive money from financial institutions, who in turn make money with wealthy people.
- The lobby of the right is very efficient."

@Keith, People value private education because it produces an advantage in terms of outcome, specifically access to the better universities and the professions.

If you remove the advantage, by means of quotas, the preference is reduced to the intrinsic value of that education (e.g. Latin and elocution). Self-interested parents will realise that their kids chances in respect of the desired outcome will be better served by attending a state school.

It's worth remembering that the move towards comprehensives in the 60s and 70s was largely the result of pressure from middle class parents whose kids failed the 11-plus and couldn't afford private fees.

Really good post and all the more topical when it has been revealed our bankers have cost the individual so much. Privatised gains and socialised losses shout inequality at full volume yet frustratingly, for those of trapped in the fallout, nothing changes. http://lifeafterdebts.blogspot.co.uk/2012/05/sink-or-swim.html